If you’ve been reading these dispatches for any time, you know my investing mantra:
Diversify.
I hope you also understand that, for me, diversification is not a “well-balanced portfolio of U.S. stocks and bonds,” as most U.S. financial advisors suggest.
To be truly diversified, you must be invested beyond U.S. borders and beyond stocks and bonds.
Real estate and other productive assets are my focus. If I were to detail my investment portfolio for a traditional financial advisor, he’d likely tell me that it’s not effectively diversified, at least not in his conventional view… because 90% of it is in real estate.
However, those real estate holdings are spread among more countries and more types of assets than most financial advisors could name.
My portfolio is well diversified among different currencies and different economies, each with its own cycle… and it is well diversified as to kind of property—income-producing rentals and agriculture… land, both raw and developed… residential and commercial…
I own a handful of stocks and mutual funds. Again, most financial advisors would say I should invest in more of these kinds of liquid assets. But I’m more comfortable with the real estate. Stocks require constant attention or you run the risk of big losses. I don’t have to monitor my various real estate holdings every day. I know they’re there. I can even go visit them when I want. But I don’t have to think about them day to day.
The problem for most people, I understand, even if you are an experienced real estate investor in your home country, is taking that first step beyond your home borders. It’s intimidating. You don’t know what you don’t know.
I like to tell a story about a guy I met years ago at a conference in the Dominican Republic. He came up to me at the opening evening cocktail party to tell me about his interest in Costa Rica. He had traveled to Costa Rica on many scouting trips, he explained, over four years. Every time he found a good deal he wondered if it was a good enough deal. Maybe he could find something better…
He talked himself out of deal after deal, and, after four years of scouting in Costa Rica, he hadn’t made a single purchase.
Finally he decided he’d been priced out of the Costa Rica market (because he’d waited too long to make a move)… and he moved on to the Dominican Republic, where he’d been researching and scouting for two years by the time I met him.
He was doing the same thing in the DR that he’d done in Costa Rica… looking for the “best” deal rather than acting on any of the very good deals he’d come across. After two years in the Dominican Republic, he hadn’t bought a thing.
Meanwhile, over those two years, values in the DR had appreciated by at least 25% on average. The guy could have bought almost any piece of property when he’d first arrived and made a great return by the time our paths crossed. Instead, he’d spun his wheels looking always for something better than what was in front of him.
You’ll never find the best deal, and, yes, there’s always the chance that some deal you find later might seem better than whatever investment you’ve already made.
You can’t worry about that. Find the best deal you can given the budget and other criteria you’re operating with right now… and pull the trigger.
My international real estate portfolio didn’t come together overnight, and neither will yours. But if you don’t buy anything, it will never come together at all.
The first purchase is the toughest, so break it down.
Start by choosing a country. You want to pick a market of upside and opportunity, of course, but I recommend that you take a broader perspective.
Don’t pick a country for real estate investment if you have no interest in visiting or spending time there. Choose a place where you want a reason to return as often as possible… not a place you’ll dread or resent having to travel to. Because you will need to travel there, ideally before you buy but certainly eventually.
And that should be part of the upside.
Lief Simon
